1982 (1) TMI 52 - HC - Income Tax

Summary

Issues:
1. Whether the disputed amounts constitute trading receipts of the assessee.
2. Whether the assessee was entitled to claim deduction for purchase tax realizations.

Analysis:
1. The judgment pertains to a reference under s. 256(1) of the Income Tax Act involving assessment years 1968-69, 1969-70, and 1971-72 for a partnership firm engaged in the foodgrains business. The Income Tax Officer (ITO) added purchase tax amounts realized by the assessee from customers as trading receipts during reassessments under s. 144/147(b) of the Act. The Appellate Tribunal upheld this decision based on previous court rulings, stating that the disputed receipts constituted trading receipts despite the assessee disputing its liability to pay purchase tax. The Tribunal emphasized that the nature of purchase tax realizations is akin to sales tax realizations, hence constituting trading receipts.

2. The primary issue was whether the assessee could claim deduction for its purchase tax liability. The Tribunal rejected the deduction claim, asserting that the only consideration was whether the amounts in question were trading receipts. However, the High Court found the Tribunal's reasoning flawed as the assessee had raised the deduction claim before the Appellate Assistant Commissioner (AAC). The AAC had accepted this contention and deleted the additions. The High Court emphasized that the assessee, following the mercantile system of accounting, was entitled to a deduction for purchase tax liability, regardless of contesting the liability or the absence of entries in its books of account.

3. Citing the Supreme Court's decision in Kedarnath Jute Mfg.Co. Ltd. v. CIT [1971] 82 ITR 363, the High Court reiterated that adherence to the mercantile system of accounting entitles the assessee to claim deductions for liabilities such as purchase tax. The court emphasized that the provision of law governs deductions, not the assessee's perception of liability or the presence of entries in accounting books. Consequently, the High Court ruled in favor of the assessee, affirming their entitlement to claim deduction for purchase tax realizations and rejecting the Tribunal's stance. The court awarded costs to the assessee amounting to Rs. 250.